Andrew Tobin and Paul Dowsey of the Global Insurance Department, write about effective claims controls in facultative reinsurance in an article titled "Taking Charge" in Best's Review. Facultative business can give rise to conflicts between reinsurers and cedents in the handling of claims, particularly if the cedent is concerned with reputational risk and has no meaningful exposure. Reinsurers should protect their ability to handle claims through the use of effective claims-control clauses. Reinsurers must address not only the text of such clauses but must also consider if the law governing the reinsurance will give effect to them. Facultative reinsurance allows reinsurers to access risks in jurisdictions to which they are not admitted. Risks are “fronted” by a local, admitted insurer — the cedent — which then cedes nearly all the risk to reinsurers.
To read the article, click here.